Having returned to full training after the knee injury that ruled him out of the 2011 World Cup and 2012 Six Nations, Wallace was named in the Munster squad to travel to Aironi on 7 March 2012.[12] He made his comeback during the game, playing the last 20 minutes.[13][14] Wallace continued his comeback by playing the first 40 minutes of Munster A's friendly against a Munster Development team on 16 March.[15] He was added to Munster's 2011–12 Heineken Cup squad in March 2012.[16] Wallace made his first appearance in the 2011–12 Heineken Cup season in the quarter-final against Ulster on 8 April 2012. This turned out to be Wallace's last game for Munster, as a recurrence of the knee injury suffered in August 2011 forced him to retire in May 2012.[17][18]

On 10 June 2000, Wallace was on the Ireland team that recorded their largest win by beating the United States 3–83.

Three lengthy injury-enforced absences hindered Wallace's international development. He only played in five games for Ireland until returning to start in the Triple Crown victory over Scotland in the 2004 Six Nations Championship — scoring a vital try in the process. He started again in both Tests in 2004 against South Africa.
He did not return again to the Irish side until the second Test against Japan in June 2005, where he scored his fourth international try.

Wallace scored a try for Ireland in their 43–13 demolition of England in the 2007 Six Nations Championship, and his form saw him selected in Ireland's squad for the 2007 Rugby World Cup in France. He started all four of Ireland's pool games at the tournament.

He kept his place in the Ireland team for the November Tests in 2009, and played a crucial role in the win over South Africa. He played in all 5 of Ireland's 2010 Six Nations Championship games and won the Man-of-the-Match award against Italy. Wallace was in outstanding form for Munster throughout the 2009/10 season, and was selected in Ireland's squad for the summer tour to New Zealand and Australia. He played against New Zealand and came on as a substitute against the New Zealand Maori before returning home for the birth of his second child. He played against South Africa, New Zealand and Argentina during Ireland's 2010 Autumn Tests, and became Ireland's most capped back-row player. Wallace played in all five of Ireland's 2011 Six Nations Championship games, including the 24–8 victory over England at Aviva Stadium that ended England's hopes of a Grand Slam.

Wallace was selected in Ireland's training squad for the 2011 World Cup warm-ups in August, and was also selected in the final 30-man squad. However, a knee injury sustained during Ireland's final warm-up game against England ruled Wallace out of the tournament in New Zealand.[22]

Wallace announced his retirement from rugby on 3 May 2012, due to the knee injury he suffered in August 2011. Wallace had made a comeback from the injury, but a re-occurrence of the injury forced him to quit the game.[30]

Speaking at the announcement,

"Although it's disappointing that injury is forcing me to retire now, I take great comfort that I've had an unbelievably enjoyable career and I feel very lucky to have been involved in an era that has seen Munster and Ireland enjoy so much success. Professional rugby has exploded in popularity and changed beyond all recognition in this country since I began and I feel honored to have played witness to its massive improvement. I'd like to thank anyone who has helped me and had faith in me during my 15 year professional career including family, teammates, coaches, medics, friends and not least supporters. I will be looking to step away from rugby and explore a few different business opportunities while also looking forward to being able to spend more time with my wife Aileen and sons Andrew and Harvey."[31]

Since his retirement from rugby, Wallace has opened a sweet shop in Limerick.[32] In 2017 he joined Bank of Ireland as a Business Development Manager for the Munster region.